SAS Buys Airbus A330/A340 - Year 2000 Analysis

In December 1999, after a thorough and long-lasting evaluation process,
SAS decided to aquire new long range aircraft to succeed the Boeing 767-300ER, which is now flying the intercontinental
routes to Tokyo, Bangkok, Beijing, Singapore and New Delhi in Asia, and to New York,
Chicago, Seattle and Washington in the USA.

This is an important decision for SAS in several ways. Not only for the obvious
objective to fullfill the requirement of introducing larger airplanes with
improved range-payload performance to fly the longest routes without the
restrictions which prevail today primarily on (the longer) Asian routes.
More importantly, the move will also assure SAS to continue being an
important player in the future intercontinental routes arena. It shows
SAS' determination to contiune flying their own international routes from
their hubs at Copenhagen, Stockholm and Oslo. The alternative would have been
to shrink back to a European regional airline feeding the bigger Star-
alliance partners at their hubs in Frankfurt, London, and Munich.

In the following, this historical and important fleet decision will be
analysed. But first, a brief historical look at SAS long haul operations.

History

Post-war attempts

During the second world-war, numberous wounded Boeing B17 Flying
Fortresses were making their way into Sweden, fleeing from German
fighters. Many B17:s were abandonned in Sweden. But, instead of going to the the scrap yard, some were bought at
very favourable prices. They were then converted by Saab into civil
airliners and put into service primarily by ABA, the Swedish short haul operator.

The type was also flown by SILA (Svensk
Interkontinental Lufttrafik AB) on the long flights to the US, thereby
introducing intercontinental traffic for what would later become SAS.
In 1946, just at the time of creation of SAS, the first DC-4 flight from
Bromma in Sweden to New York took place. This flight should be
seen as the start of SAS intercontinental operations.

The Prop-Era - first to LA and Tokyo via the Pole

SAS have always been strong on the inter-
continental routes from Scandinavia. It flew DC-4, DC-6 and DC-7 in the
post-war, pre-jet era to many places around the world. The age of the propliners was the 1950s, and
the big Douglas airplanes dominated the SAS fleet.

On November 15th, 1954 SAS introduced the "first new commercial
route in a thousand years" when it started the new direct (including technical
stops) polar route between Copenhagen and Los Angeles flying the DC-6B.

In 1957, another pioneering route was introduced, the transpolar route
between Copenhagen and Tokyo. Thanks to the long range capability of the DC-7C it
cut 18 hours off the schedule.

DC-8 and the new jet-age

SAS was one of the first airlines to introduce the
Douglas DC-8, in 1960. This magnificent airplane could fly most
intercontinental routes nonstop, to places like New York, Seattle,
and Bangkok. SAS operated many versions of the DC-8, including
the early DC-8-55, the ultra-long range DC-8-62, and the high capacity,
stretched DC-8-63, as well as cargo versions.

As an extra note, SAS also operated Convair CV-990s, leased from
Swissair, for a couple of years during the 1960s. These
had similar configuration and design with the DC-8, but lacked
the range and were operated on short to medium haul routes.

Douglas DC-8-63 OY-KTF in hangar at Stockholm-Arlanda in June 1983.

The Widebody era - the SAS Golden Age

In the early 1970s, with the widebody era just around the corner,
to be competitive (?), SAS had to buy the new jumbojets like all other big airlines. The Boeing 747
was introduced in 1971, going into the heavy routes to New York and Tokyo. The three-engined McDonnell
Douglas DC-10-30 followed suite in 1974. For most of the 1970s, and wellinto the 1980s, SAS operated three different longrange aircraft types, and
this period must be seen as the GOLDEN AGE for SAS.

Between 1985-1990 all three types disappeared
from the SAS-colors (some remained in Scanair). They were succeeded by the much more modern and
cost-efficient Boeing 767-300ER, which also had a better (smaller) size compared to the earlier widebodies.

Boeing 767 - the present situation

When SAS started looking for new longrange aircraft in the latter
part of the 1980s, the main competition was between the McDonnell Douglas MD-11 and
the Boeing 767-300ER. SAS actually ordered (optioned) 12 MD-11s, but that
commitment was later cancelled in favour of the Boeing 767-300ER. One can
speculate that the MD-11 was probably a bit too large for the Scandinavian
market at the time. It was later shown that the MD-11 did not meet the
performance specification (the range was 6-7% short of expectations).

The Boeing 767-300ER was a good fit for SAS´ needs at theend of 1980s and the beginning of the 1990s. It was then chosen as the standard
longrange aircraft. Unfortunately, neither the 767 fullfilled the specifications, mainly
due to less efficient PW4060-enginges than anticipated. This caused payload-
restrictions on the longest routes to Asia.

SAS also ordered a couple of 767-200ER
for the long nonstop routes to South America and Singapore, but these
operations were soon abandonned due to lack of profitability. The South American routes
were taken over by VARIG, and Singapore was routed via Bangkok.

SAS Boeing 767-300ER

After a long and thorough evaluation, SAS in December 1999
announced its choice of a new long range fleet to fulfill the needs discussed above. The choice
fell on the Airbus A330/A340-famlily of large capacity airplanes. Even though SAS did operate
some Airbus A300B4 in the early -80s, which were too big for SAS' needs at
the time, the general feeling is that Airbus has added a "new" customer,
and this can be called a break through for Airbus at "fortress SAS".

This choice was soon followed by another airplane buy. The
Airbus A321 was chosen as the "big" airplane for the European and shorter haul routes.
This choice could theoretically lead to Airbus taking over the show at SAS, selling more members
of the Airbus A320-family, utilising the family-concept to its full potential, eliminating the
Boeing 737s from the fleet. However, no indication so far has been given of such a scenario.

The Route Network

During the golden age, SAS operated an extensive network around
the world, including Santiago, Buenos Aires, Montivedo, Sao Paulo, Rio De Janeiro in
South America, Nairobi, Khartoum and Johannesburg in mid/southern Africa, Karachi, Calcutta,
Bangkok, Singapore, Manilla, Hong Kong and Tokyo in Asia, as well as Montreal,
Chicago, Los Angeles, Seattle and New York in North America.
Some of these destinations were no more than technical stops due to the limited range of the
Douglas propliners, but it does give an impressive indication of the width of
SAS longhaul operations in those days.

Todays route structure, based purely on commercial
considerations, includes New York, Chicago, Seattle, Washington, Tokyo, Bangkok,
Singapore, Bejing and New Dehli, as well as code-shareflights with Air Canada to
Toronto, and to Brazil with VARIG. San Fransisco is comming online in May 2002.
It does not include such important cities as Hong Kong, Osaka, Johannesburg, Los Angeles and Miami.
Speaking to people within SAS, there have been indications and suggestions from
time to time of new routes such as Shanghai in China, Atlanta and Boston in
the USA, and maybe a re-opening of the Hong Kong route. These developments have
yet to be seen, though.

Why a new Longrange Aircraft?

All market forecasts show a very bright future demand
for air travel. The Boeing 767-300ER is alreday too small on many intercontinental routes,
especially to the USA where load factors over 90% are not uncommon. SAS will thus require
larger airplanes on these routes.To Asia, the (lack of) payload-range give sometime
severe restrictions which directly affect the bottom-line. Something has to be done and
SAS was standing at the crossroads. Either...... to choose leaving the long range business all
togehter. This would certainly be possible, feeding the traffic into Frankfurt and onto
the Lufthansa jumbojets flying all over the world, completed with code-share agreements with
other STAR-alliance members like THAI, Singapore Airlines,
VARIG, Air Canada and United Airlines.

OR...... to choose exploiting and expanding its own
intercontinental network by investing in a new large widebody, long range aircraft capable of
handling the projected growth in traffic for many years to come. It should better match
the payload-range demands on the longest destinations, especially the Far East in all
weather conditions year around.

It is also a fact that SAS can't operate the relatively small Boeing 767-300 profitable on
several routes despite an impressive load factor in the high 80%-range.

SAS chose the latter. This is a good indication that SAS is here to stay in the intercontinental
arena, which is a prerequisite for claiming to be a major world class airline.

SAS decides on a new long range Aircraft

At a monthly meeting in Linköping of the local branch of the
Swedish Aeronautical Society (FTF, Flygtekniska Föreningen), Mr. Bengt-Olov Näs,
Director, Aircraft and Engine Analysis, was invited to talk about
the evaluation process which preceeded the decision of new long range aircraft at SAS. In the
following, a summary of his speech is given:

Economy

Unfortunately, SAS has not made any money on their long range
operations, despite an 80%+ cabin load factor in recent years on many routes. This is mainly
due to the (lack of) size of the Boeing 767-300. It has simply become small, with too few seats
to be economically viable for the SAS cost structure. A typical seat-arrangement for the 767
is 66 seats in business-class and 122 seats in tourist-class for a total of 188 seats. That is
at least 40% less than SAS´ main competitors aircraft. And, when you reach a 70-80% load
factors, the economics of scale starts to bite. SAS is then at a clear disadvantage. The
Boeing 767-300 also gives SAS payload-range restrictions on many long-distance routes,
like Tokyo, Bangkok and Hong Kong (now postponed). This is directly translated into less
profit.

The new aircraft to be bought though, will have a 40% larger seat
capacity. Even though the (net) trip-cost will be 20-25% higher for the new larger aircraft,
it all ends up with a cost-per-seat reduction of 15-20%. As long as SAS can fill the airplanes
with a reasonably high load factor of 70% or more (the calculated break-even load factor),
the airline will make a profit. It is estimated that the intercontinental operations will
produce a profit of 300 MSEK (30-35 MUSD) per year.

It seems that the Airbus-family is a better fit for SAS.The Boeing 777 also plays on its family concept, but the Airbuses
have a little bit smaller size which is better for SAS´ route structure. The smaller Airbus A330-200,
which has not been ordered at present, could be a very good "route opener"
to start, and build traffic, on new routes. Also the stretched A340-600 is available should
market conditions require a bigger aircraft.

As for engines, there is a monopoly on the Airbus A340 with the CFM56-5C4, which always
gives a disadvantage for the airline negotiating. On the Airbus A330, there is a much wider
choice of engines, with three different manufacturers. The choice of engine for the A330 was
decided in spring 2001 and it fell on the Rolls Royce Trent 772.

Present long range Aircraft Order status

At present, the Airbus-order comprises firm orders for
eleven Airbus A330-300 (4) and A340-300 (7), plus options on another seven aircraft (the
mix of numbers of each type is yet not defined).

The first Airbus A340 will be delivered in
July 2001, followed by the first A330
in August 2002. All (firmly ordered) airplanes should be delivered by 2004.
The total value of the firmly ordered aircraft is about 1.2 billion
dollars.

Airbus A340-300 in house-colors coming in to land at Le Bourget in June, 1993

Airbus A330-300 in house-colors coming in to land at Le Bourget in June, 1993